TJC 2023_H2 Economics compiled answers_Papers 1 and 2

2023 JC2 H2 Economics TJC Prelims Suggested Answers 1 Question 1: The Future of Food in Singapore Suggested answers (a) Using the marginalist principle, explain why a rational working adult would choose to purchase food via UberEats. [3] ● The marginalist principle involves the weighing of the marginal benefit (MB) and marginal cost (MC) in the pursuit of self-interest, which is to maximise utility in the case of a consumer. ● The MB is the utility such as the convenience gain ed from consuming an additional unit of food delivery services. [1] ● The MC is the additional cost such as platform fee s incurred from the consumption of an additional unit of food delivery services. [1] ● In the scenario where the MB is greater than MC, a rational working adult would choose to purchase food via UberEats in order to maximize his utility. [1] (b) Given how “customers are just used to the conve nience now” (Extract 2), explain how the price elasticity of demand for food delivery services has changed during the pandemic. [3] Linking extract evidence and PED [2m] ● “Customers are just used to the convenience now” s uggests that the degree of necessity [1] is increasing as customers grow accustomed to ordering catalysed by the pandemic as well. ● Hence, consumers will be less responsive to price changes and quantity demanded will fall less than proportionately to a price increase. [1] Change in PED [1m] ● Demand becomes more price inelastic OR |PED| becom es less than 1. [1] (c) (i) Explain why there is allocative inefficienc y in the market for food delivery services. [4] ● In the consumption of food delivery services, cons umers only consider their private costs, such as the cost of the delivery and the private benefits, such as the convenience provided by the delivery services. [1] OR ● In the production of food delivery services, produ cers only consider their private costs, such as the marginal cost of production which includes the cost of labour and their private benefits which is the additional revenue a producer earns fr om producing one more unit of food delivery service. [1] ● They ignore external costs such as the healthcare costs borne by pedestrians who inhale the transport emissions leading to health issues. [1] ● The presence of marginal external costs creates a divergence between the marginal social cost (MSC) and marginal private cost (MPC) where MSC > MPC. ● Left to the free market, producers produce their p rivate optimal quantity, Qp where marginal private benefit (MPB) = MPC. However, the social optimal level of production is at